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When is it time to go it alone?

In uncertain economic times, it is common to see a surge in new business start-ups. When the going gets tough, the tough get going, as they say.

Encouragingly, the barriers to entry are not very high in the design industry. But if you are seriously thinking about being your own boss, you need to think carefully about yourself and any partners involved.

You need to be motivated by more than a dislike of your present job. You have to burn to want to do it. Absolute commitment is crucial – the half-hearted fail. Statistically, one in five start-ups fail in 12 months alone. So be honest – why do you want to do it?

Even if you are deeply committed to launching your own consultancy, are you cut out for it? Sure, you will succeed or fail on your own merits and there is no job interview or selection process to go through, but ask yourself: are you disciplined and a self-motivated self-starter, are you resilient, healthy and do you have the complete support of your spouse/ family/ partner? Say no to any of these and think again.

You will have to be your own taskmaster, working unlimited hours with uncertain holidays and less pay than you’re used to. There will be no support from teams of workers, or corporate resources to shield and protect you. You may be paying all the consultancy outgoings before money starts coming in, while your own living expenses have to be met. Scary stuff. But if you’re up for the challenge, the excitement, the risk and rewards and the terrors involved, how do you turn your dream into reality?

First, don’t jump out of your present job until you are ready. And when you are actively considering jumping, also consider your legal obligations to your present employer. If you are a director and you are thinking of leaving with some of your colleagues, or even clients, remember that you have a fiduciary commitment to the company as a director, which is not something to be dismissed lightly. Neither are the terms of your service contract, director or not. It will most likely have non-competition and non-solicitation clauses in it.

If you believe you have a client or two which will move with you, then go and see an industry specialist lawyer who will guide you through what you can and cannot do. Starting with litigation around your neck is not conducive to a happy consultancy launch.

Assuming there are no legal complications, you will still need a lawyer. You will need to decide whether you are going to be a sole trader (with full personal liability), a partnership (with a partnership agreement), a limited liability company, (which means rigorous accounting, audits and a degree of public disclosure), or a limited liability partnership. Most start-ups these days are limited companies, which can be bought “off the shelf” for £100-£200.

The company will have its own constitution, governing what it can and cannot do. This is contained within the Articles of Association. They come with the company and you can alter them to suit your own needs.

Equally important is a Shareholders’ Agreement. This simply deals with agreements between the shareholders about who has what rights, about how shares in the company will be valued in the future, and so on.

Then there is the matter of the company name, which has to be registered legally. You also need to register a domain name for your future website. On both fronts you may find the name you want is already registered, so don’t get too besotted by a name too early. This also means designing the letterhead and corporate identity after your company name has been registered, not before.

Then there is the matter of finance. It may be that you have significant spare funds of your own, or your family or friends want to finance you. Or, if you are really lucky, you may have a client willing to pay upfront to bankroll you. Most people are not so fortunate, so some degree of funding will usually be required.

A simple fluctuating overdraft is the optimum solution. Banks, of course, are notoriously risk-averse and almost certain to want security for any overdraft or short-term loan. Ideally, try to get finance secured on the company’s book debts, otherwise you may find yourself having to give personal guarantees.

Another source of finance is high net worth individuals, commonly called Business Angels. They will usually put cash into propositions they like for a share of the equity (the Shareholders Agreement again) and a seat on the board, although they will not actively involve themselves in the management of the consultancy. There are a variety of networks of Business Angel that can be accessed through the British Venture Capital Association (www.bvca.co.uk).

You will also need to have a business plan, both for the bank and for yourself. This should include a target of where you want the business to be after one and three years.

A financial forecast and budget, plus the cash flow forecast are the cornerstones of the business plan, for which it is best to use an accountant. Thanks to the wonders of spreadsheet software, they can keep endlessly changing the financial models until everyone is happy.

Premises are important. Ideally, they are small, but smart and in tune with your positioning and culture. But be aware of the fitting out costs, including the equipment – even when leased. More importantly, without a trading record, you will be asked for a rental deposit. This will be three months’ rent if you are lucky, but normally more like six months’. Even if you start in serviced offices or at home, eventually you will need to confront the property issue. A good property agent can save a lot of time and money.

All you need to do now is decide how your accounting function will be dealt with – outsourcing it in the early stages is a common route. After that, register for VAT (your accountant again); ensure you have the proper insurances in place (insurance broker); ensure that you have “terms of business” to give clients (your lawyer); and appropriate contracts of employment for any/ all staff (your lawyer again).

Finally, I leave the launch party celebrations to you.

What should a business plan contain?

– Details of your proposed design consultancy: its points of distinction and differentiation; the role and opportunities for the new venture

– The nature of the market and how your proposition fits into the market

– How you are going to market the company and its services

– Who is in the management team and why you are well qualified – your experience, your achievements and your track record (your bank will need this information)

– The financial forecast and budget – the more detailed the better

– A cash flow forecast, which shows clearly the peaks and troughs in the cash position

Jim Surguy is managing director of Results Business Consulting, which is a specialist advisor to the design and marketing services industries